24Q1 saw a loss and maintained a “buy” rating
The company released its quarterly report on April 26. The 24Q1 achieved revenue of 1.23 billion yuan, -9% year-on-year; net profit to mother was 330 million yuan, and 23Q1 was 60 million yuan. Affected by fluctuations in equity investment, the company experienced another loss in 24Q1, but looking at the abundant carry-over resources throughout the year, the carry-over of key projects is expected to drive performance correction.
We maintain our 24-26 EPS profit forecast of $0.47/0.63/0.68. Comparatively, the company's average 24PE is 10 times. Taking into account the company's core urban resources, profit potential of projects to be carried over, and performance fluctuations brought about by stock investment, we still believe that the company's reasonable 24PE is 11 times, and the target price is 5.17 yuan, maintaining a “buy” rating.
Fluctuations in equity investment led to losses in 24Q1
The 24Q1 company had a small completed area, which led to a year-on-year decline in revenue. There was a loss in net profit due to: 1. The share price of Nanwei Medical (688029 CH) held by the participating company Zhongke Investment Company fell 31%, causing the company to record an investment loss of 300 million yuan; 2. The stock price of Guoxin Securities (002736CH) held by the company fell 2%, causing the company to record a fair value change loss of 50 million yuan. Excluding the impact of equity investment, we estimate that the company's real estate business is close to break-even. Due to the small carry-over scale, we think the indicative significance for the whole year is weak.
The downturn in the market and declining push are dragging down sales, and land acquisition is abundant
24Q1 achieved sales volume of 5.47 billion yuan, -56% year over year; sales area of 77,000 square meters, -69% year over year. Judging from the high average sales price, sales projects are concentrated in Beijing, and the sales scale declined due to adjustments in the real estate market in Beijing and the year-on-year decline in sales promotion (23Q1 new marketing/renewal of several projects in Beijing represented by Tiantanfu). The 24Q1 company did not acquire new land, but it raised 3 billion yuan through winning tickets, and the monetary capital at the end of the period was 15.21 billion yuan, +11% compared to the end of '23, and there is plenty of land acquisition ammunition. We expect the company to closely track the pace of supply in the Beijing land market and follow up the progress of urban village renovation.
There are plenty of resources to be carried over. The potential profit from shed reform in Tiantanfu and Linhe Village is considerable. By the end of '23, the company had sold 3,536 million square meters of uncarried over area, and the contract debt was 36.32 billion yuan. Compared with the revenue coverage rate of 178% in '23, the resources to be carried over are sufficient. In particular, I saw that Tiantanfu/Wangtan Xinyuan had a carry-over area of 43/60,000 square meters in January and 23, driving Xingrui Company (Wangtan shed renovation project company) to achieve revenue/net profit of 70.9/40 million yuan, while the uncarried over area at the end of the period was still 22.9/90,000 square meters; 2. The Linhe Village scaffolding project locked in management fees and obtained government approval records. It is expected that carry-over will begin after the government audit is completed. We expect the potential profit volume of these two projects to be significant, which is expected to be an important support for the company to release profits.
Risk warning: Beijing regional market risk, risk of shed reform and first-level development projects falling short of expectations, risk of performance fluctuations due to equity investment and minority shareholders' profit and loss ratio.